“Can Detroit Rebuild Its Middle Class?” from the National Journal, Tim Alberta (2014) http://www.nationaljournal.com/next-economy/america-360/can-detroit-rebuild-its-middle-class?mref=scroll

In this fascinating article by Tim Alberta (2014) from the National Journal, there is a focus on rebuilding the middle class of Detroit with the image of diversity and self-sustainability. The underlying ideology is that a strong middle class is the key to a thriving city. There are currently 2 Detroit’s: one that portrays a downtown revival with new condos, business, and breweries, and the other that resembles a “zombieland,” completely lacking inhabitants (Alberta, 2014). Alberta (2014) says that the city’s biggest problem is a lack of residents. People are needed to build the middle class and restore the economy. Even though there is a boom of new businesses, it has not been enough to draw people to live in the depressed and abandoned neighborhoods. Reasons that young and educated workers do not want to live in Detroit is because crime is off the charts, the public school system is one of the worst in the nation, and the city’s public services are significantly lacking (Alberta, 2014).

The rebuilding attempts that are taking place are multi-faceted. City and state officials are trying to rebuild the middle class by luring educated, professional immigrants to the area. Non-profits are working to retain the graduates of Michigan’s universities. Additionally, non-profits are providing job-training and connecting employees with in-demand industries. Business organizations and coalitions are diversifying and trying to destigmatize Detroit as a manufacturing only city. Rebranding the city is considered an especially important step (Alberta, 2014). Doing this will reinforce the importance of education that was once not unnecessary to get a manufacturing job in the city. Millions in investment dollars are going into technology and the energy industry to attract a young and diversely educated workforce. “To build a long-term economic base, Detroit, like a low budget baseball team, must develop and retain homegrown talent” (Alberta, 2014). Once the middle-class is stronger, more money will be available for governmental services like schools and public works, and the city will fully start to heal.

Breunig, C., Koski, C., & Mortensen, P. B. (2009). Stability and punctuations in public spending: A comparative study of budget functions. Journal of Public Administration Research and Theory, 20:703-722.

This article published in the Journal of Public Administration Research and Theory by Breunig, Koski, and Morentsen presents a longitudinal study of stability and punctuations of public spending in the United States and Denmark. Breunig et al apply Baumgarnter and Jones’ disproportionate information processing model as a theoretical basis for this research. (The disproportionate information processing model was presented in 2005 by Baumgartner and Jones as a more general model of their punctuated equilibrium model/theory). In addition to the two countries being compared in this quantitative study, the spending patterns across different subcategories of public budgets in the areas of health, education, transportation, military, etc. are analyzed (Brenig et al, 2009). Their findings align with what Baumgartner and Jones predicted would occur universally with spending punctuations; “political decision makers either ignore or overact to information signals from their surroundings. This results in a distinct pattern of both stability and punctuated change in policy outputs often measured in terms of public spending indices” (Brenig et al, 2009, p. 704). A pattern of kurtosis was reflected across multiple subcategories of public budgets in both countries. Kurtosis is represented in a diagram as long periods of flat, incremental change with sharp punctuations that spike rapidly and then quickly return to equilibrium (Brenig et al, 2009).

The usefulness of this study in looking at the situation in Detroit, Michigan and its fiscal crisis is that it helps explain the unprecedented fiscal punctuation that occurred in 2013. Because the policy makers did not make the small, incremental changes to respond to the changing demographics and economic environment that affected the city’s budget subcategories, the largest municipal bankruptcy in US history occurred. Who knows if the crisis could have been averted? However, punctuated equilibrium theory does help us understand why. The data presented in this article by Breunig et al (2009) reminds me of a pressure cooker; if the incremental changes do not occur- to let off steam, then there will be an explosion. This article also made me realize that a good way to study public policy is through budgetary punctuations; these punctuations are either the result of an overreaction or poor planning on the part of policy makers.

Binelli, M. (2013). “Chapter 11, Politics.” pp. 229-51. Detroit City is the Place to Be. New York, NY: Picador.

Mark Binelli gives a good portrayal of the political upheaval that surrounded the bankruptcy of Detroit in Chapter 11 of his book, Detroit City is the Place to Be. At a time when a fiscal crisis was iinevitable, Detroit needed leadership that had experience, innovative ideas, and a vision for the failing city. Kwame Kilpatrick was elected the mayor of Detroit in 2002 and left in handcuffs in 2008, charged with 24 federal felony counts of mail fraud, wire fraud, and racketeering (Binelli, 2013). The Democrat mayor was not only stealing money from the city, he was stealing the trust of the citizens remaining in the economically devastated region. After an interim major, Democrat Dave Bing was elected in 2009 as the city’s highest ranking official. Bing was a former Detroit Piston and an auto-parts supply company owner (Binelli, 2013). Although Bing was seen as the exact opposite of flamboyant and charismatic Kilpatrick, his lack of public administration skills did not serve Detroit well.

Adding to the punctuation of bad leadership at the city level, Republican Rick Snyder became Michigan’s governor in 2011. In trying to attract new business to the state, Snyder embraced supply side economics by lowering corporate taxes by more than $1.5 billion dollars per year. He made up for the cuts by minimizing aid for higher education, reducing K-12 funding, and raising the tax rate for pensions. When cities around Michigan were at their breaking point, the state and federal government were reducing aid to local governments (Binelli, 2013).

In 2011, Governor Synder adopted the Emergency Financial Manager Law as a state response to the economic condition of cities around Michigan. Detroit’s City Council and Mayor Bing remained in power but all budgets would have to be approved by a nine person oversight board (Binelli, 2013). The city was required to cut payroll and lay-off public workers (in a city with one of the highest unemployment rates in the nation), sell off city assets, and outsource departments (Binelli, 2013). Gary Brown, Detroit City Council pro-term, said of the consent agreement between the city and the state of Michigan, it is a “great deal… if you look at the fact that we don’t have anything to bargain with, we don’t have anything to negotiate with, we’re down to the ninth hour, we don’t have any cash and we don’t have any leverage”(Binelli, 2013, p.251).

Obviously, the political climate around the Detroit Bankruptcy of 2013 was a contributing factor to this economic punctuation like none ever seen in the United States.

“Organizational Implosion, a Case Study of Detroit, Michigan” by Staci Zavattaro

Zavattaro, S. M. (2014). “Organizational Implosion A Case Study of Detroit, Michigan.” Administration & Society, 46(9), 1071–1091. http://doi.org/10.1177/0095399714554681

In this article, Zavattaro (2014) looks at the case study of Detroit through the framework of organizational implosion. Zavattaro (2014) calls the Bankruptcy of Detroit an organizational implosion, which for purposes of this case study, means that the internal organization of the Detroit municipal government had an inward collapse. An implosion indicates that there were negative events outside the organization and adverse personnel actions within the organization, causing an “implosion” that will have lasting external effects on the organization and the citizens of Detroit (Zavattaro, 2014, p. 1076). In terms of Punctuated Equilibrium Theory, this implosion is the climax of the punctuated events that lead to the Bankruptcy of Detroit in 2013.

Zavattaro (2014) gives a brief history of Detroit, stating that the city once had the highest median income and home ownership rate in the country. However, by the 2014 Census, the poverty rates of Detroit were some of the highest in the country at 20.4%, meaning over 20% of the population earn less than $10,000 per year (Zavattaro, 2014). From a purely methodological standpoint, I presume that the poverty rate is probably even higher because there is a large homeless population in Detroit that would be difficult to include in the Census. The reason the poverty rate is so important is because it directly affects tax receivables for the city government.

Detroit’s implosion has been building over the last two decades because of the following reasons: an economy dependent on a single industry, deep-rooted racial tensions, and a history of governmental corruption (Zavattaro, 2014). City administrators and elected officials played a key role in Detroit’s implosion, or bankruptcy punctuation (Zavattaro, 2014, p. 1073). The former mayor, city manager, and assistant city manager have all been sentenced to prison for corruption reasons pertaining to the city’s management of financial resources (Zavattaro, 2014). Because the government of Detroit fostered a culture of unethical behavior and hired employees under this premise, the actions of individuals were able to affect the organization as a whole. Additionally, since the members of the city government were using “rhetoric inconsistent with reality”, they increased the chances of an imminent implosions by lacking transparency and covering up their corruption to the public (Zavattaro, 2014). This organizational incompetence only aggravated the environmental punctuations, such as citizen flight, declining property values, and high unemployment.

Administrators of Detroit repeatedly ignored the rising economic crisis of the city, especially in regards to pensions and healthcare…even going so far as telling the public everything was good (Zavattaro, 2014). In 2006, Mayor Kilpatrick experienced a $300 million budget shortfall, yet refused to raise taxes. There was a healthcare cost increase of $78 million, up 46% in three years, and a pension payout due to police and firefighters of $177 million, up in the same three years from $120 million (Zavattaro, 2014). That is almost $200 million in additional payments at a time when the economy was declining, and the mayor refused to attempt to raise additional revenue. This could be seen as really the first policy punctuation that directly lead to the bankruptcy.

In conclusion, looking forward for Detroit means rebuilding on so many levels, including citizen trust in their government. For a post-implosion Detroit, Zavattaro states that a new equilibrium will be found and the city government will rebuild. “Once implosion happens, rebuilding naturally takes place. Ideally, administrators should encourage meaningful citizen participation in this process and can envision new uses for old lands and buildings” (Zavattaro, 2014, p. 1087).

In this article from the Journal of Policy Analysis and Management, Meagan Jordan (2003) applies Punctuated Equilibrium Theory (PET) to local government budgeting and agenda setting through a quantitative study of large city expenditures over a 27 year span. Jordan argues that PET is an applicable policy to agenda setting at the local level because changes in the agenda and budget have a more direct effect on citizens than changes at the state and national level. Equilibrium is where local administrators want to stay because it makes the most sense politically (Jordan, 2003, p. 345). However, changes in the agenda equilibrium signify changes in the agenda priority.

Jordan hypothesized that punctuations and equilibrium at the local level followed a leptokurtic distribution; this basically means there are mostly periods of sustained equilibrium followed by sharp punctuations of change which return quickly back to equilibrium (2003, p. 347). This explanation for a leptokurtic distribution when using PET for policy analysis at the local level is because the most important political goal for local administrators is to maintain a stable tax base. Stability is found at equilibrium. Jordan (2003) compares the city to a market model of competition. Because of the close proximity of cities to one another, people can easily move if they are not feeling well served by their local government. If people move, especially the middle-class, this greatly affects the stability of the tax base.

Another factor that affects the expenditures of local governments are policy decisions that come from higher levels of government (Jordan, 2003). An influx of investment in local programs through grants and other sources from the state and federal level cause punctuations. Cities with the highest dependency on these intergovernmental funds have more punctuated fluctuations (Jordan, 2003, p. 350).

Jordan (2003) separated expenditures into two policy typologies: allocational and non-allocational. Allocational expenditures are those that the city are required to have in the budget every year; they include police, fire, and sanitation. Changes in allocational expenditures rarely occur, therefore, allocational expenditures contribute to equilibrium. Non-allocational expenditures are capital expenses and maintenance costs that arise for maintaining parks, highways, and public buildings (Jordan, 2003, p. 354). This typology of expenditures can have the greatest effect on large punctuations, as well as they are the most contested items on the agenda.

Overall, Jordan found that expanding PET to local government expenditures was a good fit that strengthens the theory. Jordan (2003) also found that in predicting what non-allocational items are coming to the agenda process can help local administrators prepare for punctuations with contingency planning. Local budgets are most prone to changes in the agenda, and therefore PET is a very useful theory at the local level (Jordan, 2003, p. 358).

I chose this article by William Sites in the Urban Affairs Review from 1997 because it give a theoretical explanation of Regime Theory as it relates to local governments, economic growth, and politics. In looking at economic policy from a macro to micro analysis, specifically on how the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 affected local economic policies, it is important to understand the dynamics of policy change at the local level. Regime Theory is a well-known and well-used theory in urban studies to research public policy through the lens of local government.

Urban Regime Theory seeks to explain how local policy is shaped by the regime or political group in power (Sites, 1997). Development policies, which are put in place at the local level, have a huge influence on economic growth. In this article, Sites (1997) uses Regime Theory to look at the connection between urban development policy and politics at the local level in regards to the evolution of cities. The three regimes that build or maintain political partnerships at the local level are pro-growth, progressive, and caretaker (Sites, 1997, p. 537). The two main regimes are pro-growth, which uses market-oriented policies for urban growth, and progressive, which focuses on community-orientated development for economic progression. Caretaker, the third regime, avoids policies influencing development and focuses on fiscal stability and maintaining basic public services (Sites, 1997). In comparing these to the major political parties at the state and national level, pro-growth would be Republican, progressive would be Democrat, and caretaker would be most like Libertarian.

In this journal article, Sites (1997) uses New York City as a case study to show how 3 different successive mayors had three different regimes, and how they uniquely affected economic and housing policies. The mayors are Edward Koch, pro-growth, from 1978-1989, David Dinkins, progressive, from 1990-1993, and Rudy Giuliani, caretaker, from 1993-1998 (Sites, 1997). Even though this appears to be a great case for Regime Theory based on the chronology of regimes, Sites describes how the theory does not explain all the policies that were put in place, counter to the desires of the regime in power. Sites (1997) argues “local development and housing programs have been strongly oriented toward market interests irrespective of political administration” (p. 538).

Even though Regime Theory does not account for all policy causality in the case of New York, Sites claims that it is still a very useful analytic theory. Public officials lack direct control of the economy and therefore have to align coalitions of support to influence urban development in the way the administrators feel is the best outcome for their city. This political alignment and specific regime of pro-growth, progressive, and caretaker are the foundation of studying local policy through a Regime Theory framework.

Title: "Do housing bubbles generate fiscal bubbles? Evidence from California cities" Author(s): Razvan Vlaicu and Alexander Whalley Source: Public Choice, Vol. 149, No. 1/2, Public Choice in a Local Government Setting (October 2011), pp. 89-108 Stable URL: http://www.jstor.org/stable/41483725

“Do housing bubbles generate fiscal bubbles? Evidence from California cities” appeared in Public Choice in 2011 and was written by Vlaicu and Whalley. These authors sought analysis of how the housing market is connected to the local city budget. Vlaicu and Whalley hypothesized that government officials pay close attention to the housing market because property tax and sales tax are two major revenue streams for local government (2011). This article looks at city level data from California between 1993-2007 to analyze the effect of house prices on city government policy.

Property taxes are levied on the assessed property value rather than the fair market value of the property. Because of the constraints of assessing property values, there is usually a 2 year lag for assessed values to reflect market conditions (Vlaicu and Whalley, 2011). Additionally, some states, such as Florida and California, have legislative measures that restrict a city’s ability to change property taxes by increasing assessed values. Because of Proposition 13 in California, there is a hard cap that limits property value increases to only 2% a year (Vlaicu and Whalley, 2011). California did see an increase in property tax revenues, even with Proposition 13, because of the increase in home sales. As properties sold in California, the assessed amount was based on the new sales amount; property tax revenue increased because of the increase in property transactions. Between 1996 and 2006, the median housing price tripled in value (Valicu and Whalley, 2011).

However, their research shows that the connection between the housing bubble climax in 2008 and the budgetary stability of cities in California were not overly interconnected. Unlike the federal government, cities must operate on a balanced budget. The results from the multiple statistical test performed by Vlaicu and Whalley show that when governments have an increase in property tax collection, they cut back on other tax receivables. There cannot be a huge windfall of money in a balanced budget without increased spending that may not be sustainable. Additionally, because the housing market is closely correlated with other economic factors (i.e. employment rates, education level, etc), an indicator of city budgetary policy is more connected to the overall economy. Sales tax is a larger portion of a city’s budget and much more susceptible to a volatile economy. All of this data implies that the housing bust of 2008 itself had little impact on city spending in California. The overall economic recession has more of an effect on local and state tax revenue than housing market changes (Valicu and Whalley, 2011).

"Remains of the Progressive City? First Source Hiring in Portland and Chicago" by Greg Schrock. Urban Affairs Revew, 2015, Vol 51(5)649-675

This journal article looks at a progressive policy, First Source Hiring, in terms of urban development as an alternative to the growth-oriented model. The progressive model focuses on a more equitable development for all rather than just urban expansion and upward mobility for a few. In the 1970’s and 1980’s, First Source Hiring was an urban progressive policy that required private sector contractors or those receiving economic development subsidies to work with publically sponsored employment and job training programs to hire the unemployed residents of that city first. The goal was to directly benefit community need and local unemployment rates (Schrock, 2015, p. 649-650). The program was used by many cities but was phased out by a changing economic and political culture in the 1990’s (Schrock, 2015, p. 650). This article looks to explain the First Source Hiring experience for current community planners with whom a resurgence in progressive policies is occurring (Schrock, 2015, p. 651).

First Source Hiring was first implemented by Portland, OR in 1978. The policy emerged from a combination of local and federal initiatives. Under President Carter’s Targeted Job Demonstration Program in 1979, 10 cities around the country participated, including Portland. A key component of this federal program was for communities to implement targeted opportunity strategies that included incentives or mandates to influence how government contractors hired their labor force (Schrock, 2015, p. 652-654). Opponents of the program, which included some unions, claimed the hiring policies infringed on their members’ ability to make a living. The 1990’s brought a changing political atmosphere; cities saw an onslaught of growth oriented, entrepreneurial mayors that replaced the progressive mayors of the 1980’s. Racial quotas and affirmative action were also being attacked during the 1990’s; First Source Hiring was added to these policies as discriminatory (Schrock, 2015, p. 655).

Schrock uses archival sources and interviews to support his premise that institutionalization is the key factor in whether a policy can be resilient to changing circumstances and has the ability to influence future actions (2015, p. 655). Policies must imbed practices and goals that are adopted by stakeholders both inside and outside of government. The degree to which a policy can be institutionalized depends on the level of adversity and the supporter’s amount of resources. Chicago had a large number of NGOs with the resources necessary to carry on the progressive ideals, even though the Chicago First Hiring policy was officially ended in 1991. Because the policy had been institutionalized, aspects of the Chicago First policy are carried on to this day in other economic and development policies. First Source Hiring is still legally a policy in Portland, OR; however, due to the fact that it bounced from agency to agency, there has been no enforcement of the policy since the early 1990’s (Schrock, 2015, p. 662). Therefore, the key is not IF a policy gets adopted, but HOW it is adopted, that can predict its effectiveness and viability over time (Schrock, 2015, p. 670).

This is an article from June 11, 2015 edition of the Economist about the future of cities located in the Midwest of the United States that are suffering from post-industrial economic decline. The three cities that are analyzed are Gary, Indiana, South Bend, Indiana, and Galena, Illinois. All three of these cities have historical roots consisting of economic policy centered on industrial employment. However, as U.S. manufacturers have gone out of business or outsourced production to foreign countries, cities all over the nation, but particularly in the Midwest, have seen never before rates of vacant buildings, unemployment, high school drop-out rates, and crime. For survival, industrial cities must reinvent themselves by focusing on economic diversification anchored on fundamentals: geographical location to attract tourism and new business and to fiscally focus on institutions like universities and hospitals. Additionally, dependence on a single employer for a city has proven to be too risky as an economic plan; multiple businesses and new industries must be present in an increasingly volatile, non-heavy manufacturing market.

Galena, Illinois is an example of a post-industrial city that has reinvented itself as a National historic site that attracts more than one million visitors per year. Galena met its post-industrial decline much earlier than many other Midwestern cities; by the end of the 19th century, it had gone from a busy metropolis competing in size with Chicago, to a ghost town. However, due to some clever economic planning during the 1960’s, city planners invested in historical preservation and put Galena back on the map as a tourist destination.

South Bend, Indiana is another example of post-industrial survival. The Studebaker headquarters were located in South Bend until the company officially went out of business in 1963; it became a “company town without a company”(Economist, 2015). Fortunately, South Bend had 2 important economical anchors that have kept the city afloat: Notre Dame University and Memorial Hospital of South Bend. Although South Bend has seen huge increases in unemployment and poverty since the 1960s, these 2 key institutions have kept the city viable. Currently, the mayor is trying to lure technology companies to South Bend with tax incentives, inexpensive power, and the geographical location of a cool climate (ideal for manufacturing technological components).

By comparison, Gary, Indiana has not fared as well as Galena or South Bend; Gary is a smaller version of Detroit, Michigan. Gary has some 5,000 abandoned buildings (about ¼ of all buildings); this is an eyesore and attracts criminals. After a change in Indiana’s property tax rules one year ago, Gary lost more than half its annual budget; this meant the city faced shutting down half of the services it could offer. The current mayor of Gary, Ms. Freeman-Wilson pleaded with the White House for Gary to be a recipient of the “Strong Cities, Strong Communities” initiative, which gave Federal funds to the 7 most distressed cities in the nation. Presently, Gary has received $6 million in state funds for building demolition, and the mayor has applied for a $21 million federal transportation grant. Gary will focus its economic policy to invest in becoming a transportation hub, being located right on Lake Michigan and just 24 miles away from Chicago (America’s third largest city).